Measuring the productivity effects of digital capital—a conceptual approach

Abstract

Productivity growth in the advanced economies has been slowing down for some time. This is surprising insofar as large-scale technological impulses are expected as a result of the digital revolution. An analysis for Germany points to significantly weakening productivity impulses from technological progress and in particular from capital formation. In order to understand the weaker capital stock effects, gross fixed capital formation is briefly examined according to different components. Starting from the established types of investment and capital, we discuss how the empirical coverage of capital as a production factor can be advanced. The focus is on a more broadly defined digital capital stock. Comprehensive indicators to describe the extent and development of the general digitization also offer conceptual starting points for defining and measuring digital capital. In this way, it could be possible to estimate what digital capital is actually available for domestic production, how it develops over time and, ultimately, what contributions to growth and productivity it makes. The paper lists a series of requirements necessary for an implementation. The dynamics of the capital stock depend on whether and to what extent current investments exceed retirements of fixed assets. In any case, rising investment per unit of labor does not necessarily indicate an increase in capital deepening. However, modern capital goods in particular are characterized by a high rate of innovation and correspondingly high retirements. This leads us to expect that even comparatively high investments based on a concept that has been comprehensively expanded in terms of digitization will not necessarily trigger correspondingly high capital stock and productivity impulses.